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Organization and Basis of Presentation

AvalonBay Communities, Inc. (the “Company,” which term, unless the context otherwise requires, refers to AvalonBay Communities, Inc. together with its subsidiaries), is a Maryland corporation that has elected to be treated as a real estate investment trust (“REIT”) for federal income tax purposes under the Internal Revenue Code of 1986 (the “Code”). The Company focuses on the development, redevelopment, acquisition, ownership and operation of multifamily communities primarily in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California, as well as in the Company's expansion markets in Southeast Florida and Denver, Colorado (the "Expansion Markets").

At December 31, 2020, the Company owned or held a direct or indirect ownership interest in 273 operating apartment communities containing 80,094 apartment homes in 11 states and the District of Columbia. In addition, the Company owned or held a direct or indirect ownership interest in 18 communities under development that are expected to contain an aggregate of 5,931 apartment homes (unaudited) when completed, as well as The Park Loggia, which contains 172 for-sale residential condominiums, of which 70 have been sold as of December 31, 2020, and 66,000 square feet of commercial space, of which 69 % has been leased as of December 31, 2020. The Company also owned or held a direct or indirect ownership interest in land or rights to land on which the Company expects to develop an additional 24 communities that, if developed as expected, will contain an estimated 7,853 apartment homes (unaudited).

Capitalized terms used without definition have meanings provided elsewhere in this Form 10-K .

Principles of Consolidation

The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, certain joint venture partnerships, subsidiary partnerships structured as DownREITs and any variable interest entities that qualify for consolidation. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company accounts for joint venture entities and subsidiary partnerships in accordance with the consolidation guidance. The Company evaluates the partnership of each joint venture entity and determines first whether to follow the variable interest entity (“VIE”) or the voting interest entity (“VOE”) model. Once the appropriate consolidation model is identified, the Company then evaluates whether it should consolidate the venture. Under the VIE model, the Company consolidates an investment when it has control to direct the activities of the venture and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the VOE model, the Company consolidates an investment when 1) it controls the investment through ownership of a majority voting interest if the investment is not a limited partnership or 2) it controls the investment through its ability to remove the other partners in the investment, at its discretion, when the investment is a limited partnership.

The Company generally uses the equity method of accounting for its investment in joint ventures, including when the Company holds a noncontrolling limited partner interest in a joint venture. Any investment in excess of the Company's cost basis at acquisition or formation of an equity method venture, will be recorded as a component of the Company's investment in the joint venture and recognized over the life of the underlying fixed assets of the venture as a reduction to its equity in income from the venture. Investments in which the Company has little or no influence are accounted for using the cost method.

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Real Estate

Operating real estate assets are stated at cost and consist of land and improvements, buildings and improvements, furniture, fixtures and equipment, and other costs incurred during their development, redevelopment and acquisition. Significant expenditures which improve or extend the life of an existing asset and that will benefit the Company for periods greater than a year, are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.

Project costs related to the development, construction and redevelopment of real estate projects (including interest and related loan fees, property taxes and other direct costs) are capitalized as a cost of the project. Indirect project costs that relate to several projects are capitalized and allocated to the projects to which they relate. Indirect costs not clearly related to development, construction and redevelopment activity are expensed as incurred. For development, capitalization (i) begins when the Company has determined that development of the future asset is probable, (ii) can be suspended if there is no current development activity underway, but future development is still probable and (iii) ends when the asset, or a portion of an asset, is delivered and is ready for its intended use, or the Company's intended use changes such that capitalization is no longer appropriate.

For land parcels improved with operating real estate, for which the Company intends to pursue development, the Company generally manages the current improvements until such time as all tenant obligations have been satisfied or eliminated through negotiation, and construction of new apartment communities is ready to begin. Revenue from incidental operations received from the current improvements on land parcels in excess of any incremental costs are recorded as a reduction of total capitalized costs of the respective Development Right and not as part of net income. Incidental operating costs in excess of incidental operating income are expensed in the period incurred.

For redevelopment efforts, the Company capitalizes costs either (i) in advance of taking homes out of service when significant renovation of the common area has begun until the redevelopment is completed, or (ii) when an apartment home is taken out of service for redevelopment until the redevelopment is completed and the apartment home is available for a new resident. Rental income and operating costs incurred during the initial lease-up or post-redevelopment lease-up period are recognized in earnings as incurred.

The Company assesses acquisitions of operating communities to determine if it meets the definition of a business or if it qualifies as an asset acquisition. The Company generally views acquisitions of individual operating communities as asset acquisitions, which results in the capitalization of acquisition costs and the allocation of purchase price to the assets acquired and liabilities assumed, based on the relative fair value of the respective assets and liabilities.

The purchase price allocation to tangible assets is reflected in real estate assets and depreciated over their estimated useful lives. Any purchase price allocation to intangible assets, other than in-place lease intangibles, is included in prepaid expenses and other assets on the accompanying Consolidated Balance Sheets and amortized over the term of the acquired intangible asset. The Company values land based on a market approach, looking to recent sales of similar properties, adjusting for differences due to location, the state of entitlement as well as the shape and size of the parcel. Improvements to land are valued using a replacement cost approach and consider the structures and amenities included for the communities and is reduced by estimated depreciation. The value for furniture, fixtures and equipment is also determined based on a replacement cost approach, considering costs for both items in the apartment homes as well as common areas and is adjusted for estimated depreciation. The fair value of buildings is estimated using the replacement cost approach, assuming the buildings were vacant at acquisition. The replacement cost approach considers the composition of structures acquired, adjusted for depreciation which considers industry standard information and estimated useful life of the acquired property. The value of the lease-related intangibles considers the estimated cost of leasing the apartment homes as if the acquired building(s) were vacant, as well as the value of the current leases relative to market-rate leases. The in-place lease value is determined using an average total lease-up time, the number of apartment homes and net revenues generated during the lease-up time. Net revenues use market rent considering actual leasing and industry rental rate data. The value of current leases relative to a market-rate lease is based on market comparables. Given the heterogeneous nature of multifamily real estate, the fair values for the land, debt, real estate assets and in-place leases incorporate significant unobservable inputs and therefore are considered to be Level 3 prices within the fair value hierarchy. Consideration for acquisitions is typically in the form of cash unless otherwise disclosed.

Depreciation is generally calculated on a straight-line basis over the estimated useful lives of the assets, which for buildings and related improvements range from seven to 30 years and for furniture, fixtures and equipment range from three years (primarily computer-related equipment) to seven years .

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For-Sale Condominium Inventory

The Company presents for-sale condominium inventory at historical cost and evaluates the condominiums for impairment when potential indicators exist, as further discussed under "Abandoned Pursuit Costs and Impairment of Long-Lived Assets" below.

Income Taxes

The Company elected to be treated as a REIT for federal income tax purposes for its tax year ended December 31, 1994 and has not revoked such election. A REIT is a corporate entity which holds real estate interests and can deduct from its federally taxable income qualifying dividends it pays if it meets a number of organizational and operational requirements, including a requirement that it distribute at least 90 % of its adjusted taxable income to stockholders. Therefore, as a REIT, the Company generally will not be subject to corporate level federal income tax on its taxable income if it annually distributes 100 % of its taxable income to its stockholders.

The states in which the Company operates have similar tax provisions which recognize the Company as a REIT for state income tax purposes. Management believes that all such conditions for the exemption from income taxes on ordinary income have been or will be met for the periods presented. Accordingly, no provision for federal and state income taxes has been made. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal corporate income taxes at regular corporate rates and may not be able to qualify as a corporate REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income and in certain other instances.

The Company did no t incur any charges or receive refunds of excise taxes related to the years ended December 31, 2020, 2019 and 2018.

Taxable income from activities performed through taxable REIT subsidiaries (“TRS”) is subject to federal, state and local income taxes. The Company recognized income tax benefit of $ 3,247,000 in 2020, recorded an income tax expense of $ 13,003,000 in 2019 and recognized income tax benefit of $ 160,000 in 2018, related to its activities through its TRSs. The income tax benefit in 2020 was primarily due to provisions of the Coronavirus Aid, Relief, and Economic Security Act, allowing for further carryback of net operating losses and operating losses for tax purposes. The income tax expense in 2019 was primarily due to (i) a net deferred tax liability of $ 5,782,000 for the GAAP to tax basis differences at the Company's for-sale condominiums, The Park Loggia, and the associated 66,000 square feet of commercial space and (ii) expense for current and net deferred tax liabilities of $ 7,221,000 , associated with the disposition of two wholly-owned operating communities, as well as the Company's sustainability initiatives. As of December 31, 2020 and 2019, the Company did no t have any unrecognized tax benefits. The Company does not believe that there will be any material changes in its unrecognized tax positions over the next 12 months. The Company is subject to examination by the respective taxing authorities for the tax years 2017 through 2019.

The following summarizes the tax components of the Company's common dividends declared for the years ended December 31, 2020, 2019 and 2018 (unaudited):

			2020						2019						2018
Ordinary income			66		%				96		%				76		%
20 % capital gain			24		%				3		%				11		%
Unrecaptured §1250 gain			10		%				1		%				13		%

Deferred Financing Costs

Deferred financing costs include fees and other expenditures necessary to obtain debt financing and are amortized on a straight-line basis, which approximates the effective interest method, over the shorter of the term of the loan or the related credit enhancement facility, if applicable. Unamortized financing costs are charged to earnings when debt is retired before the maturity date. Accumulated amortization of deferred financing costs related to unsecured notes was $ 25,239,000 and $ 25,995,000 as of December 31, 2020 and 2019, respectively, and related to mortgage notes payable was $ 2,046,000 and $ 1,784,000 as of December 31, 2020 and 2019, respectively. Deferred financing costs, except for costs associated with line-of-credit arrangements, are presented as a direct deduction from the related debt liability. Accumulated amortization of deferred financing costs related to the Company's Credit Facility was $ 13,501,000 and $ 11,815,000 as of December 31, 2020 and 2019, respectively, and was included in prepaid expenses and other assets on the accompanying Consolidated Balance Sheets.

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Cash, Cash Equivalents and Cash in Escrow

Cash and cash equivalents include all cash and liquid investments with an original maturity of three months or less from the date acquired. Cash in escrow includes principal reserve funds that are restricted for the repayment of specified secured financing. The majority of the Company's cash, cash equivalents and cash in escrow are held at major commercial banks.

Interest Rate Contracts

The Company utilizes derivative financial instruments to manage interest rate risk. See Note 11, “Fair Value,” for further discussion of derivative financial instruments.

Comprehensive Income

Comprehensive income, as reflected on the Consolidated Statements of Comprehensive Income, is defined as all changes in equity during each period except for those resulting from investments by or distributions to shareholders. Accumulated other comprehensive loss, as reflected on the Consolidated Statements of Equity, reflects the effective portion of the cumulative changes in the fair value of derivatives in qualifying cash flow hedge relationships.

Earnings per Common Share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of shares outstanding during the period. All outstanding unvested restricted share awards contain rights to non-forfeitable dividends and participate in undistributed earnings with common shareholders and, accordingly, are considered participating securities that are included in the two-class method of computing basic earnings per share (“EPS”). Both the unvested restricted shares and other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company's earnings per common share are determined as follows (dollars in thousands, except per share data):

			For the year ended
			12/31/20						12/31/19						12/31/18
Basic and diluted shares outstanding
Weighted average common shares—basic			140,094,722						139,054,191						137,844,755
Weighted average DownREIT units outstanding			7,500						7,500						7,500
Effect of dilutive securities			332,973						509,859						436,986
Weighted average common shares—diluted			140,435,195						139,571,550						138,289,241
Calculation of Earnings per Share—basic
Net income attributable to common stockholders			$	827,630					$	785,974					$	974,525
Net income allocated to unvested restricted shares			( 1,955 )						( 2,063 )						( 2,839 )
Net income attributable to common stockholders, adjusted			$	825,675					$	783,911					$	971,686
Weighted average common shares—basic			140,094,722						139,054,191						137,844,755
Earnings per common share—basic			$	5.89					$	5.64					$	7.05
Calculation of Earnings per Share—diluted
Net income attributable to common stockholders			$	827,630					$	785,974					$	974,525
Add: noncontrolling interests of DownREIT unitholders in consolidated partnerships, including discontinued operations			48						46						44
Adjusted net income attributable to common stockholders			$	827,678					$	786,020					$	974,569
Weighted average common shares—diluted			140,435,195						139,571,550						138,289,241
Earnings per common share—diluted			$	5.89					$	5.63					$	7.05

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All options to purchase shares of common stock outstanding as of December 31, 2020, 2019 and 2018 are included in the computation of diluted earnings per share.

Abandoned Pursuit Costs and Impairment of Long-Lived Assets

The Company capitalizes pre-development costs incurred in pursuit of new development opportunities for which the Company currently believes future development is probable (“Development Rights”). Future development of these Development Rights is dependent upon various factors, including zoning and regulatory approval, rental market conditions, construction costs and the availability of capital. Initial pre-development costs incurred for pursuits for which future development is not yet considered probable are expensed as incurred. In addition, if the status of a Development Right changes, making future development by the Company no longer probable, any non-recoverable capitalized pre-development costs are expensed. The Company expensed costs related to development pursuits not yet considered probable for development and the abandonment of Development Rights, as well as costs incurred in pursuing the acquisition or disposition of assets for which such acquisition and disposition activity did not occur, in the amounts of $ 12,317,000 , $ 4,896,000 and $ 4,388,000 during the years ended December 31, 2020, 2019 and 2018, respectively. These costs are included in expensed transaction, development and other pursuit costs, net of recoveries on the accompanying Consolidated Statements of Comprehensive Income. The amount for 2020 includes the write-off of $ 7,264,000 related to a Development Right in New York City that the Company no longer expects is probable. Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods.

In the Company's evaluation of its real estate portfolio for impairment, as discussed below, it considered the impact of the COVID-19 pandemic and did not identify any indicators of impairment as a result.

The Company evaluates its real estate and other long-lived assets for impairment when potential indicators of impairment exist. Such assets are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a property or long-lived asset may not be recoverable, the Company assesses its recoverability by comparing the carrying amount of the property or long-lived asset to its estimated undiscounted future cash flows. If the carrying amount exceeds the aggregate undiscounted future cash flows, the Company recognizes an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property or long-lived asset. Based on periodic tests of recoverability of long-lived assets, for the years ended December 31, 2020, 2019 and 2018, the Company did no t recognize any impairment losses other than those related to the impairment on land held for investment and casualty gains and losses from property damage as discussed below.

The Company evaluates its for-sale condominium inventory for potential indicators of impairment, considering whether the fair value of the individual for-sale condominium units exceeds the carrying value of those units. For-sale condominium inventory is stated at cost, unless the carrying amount of the inventory is not recoverable when compared to the fair value of each unit. The Company determines the fair value of its for-sale condominium inventory using estimated undiscounted future cash flows. For the years ended December 31, 2020 and 2019, the Company did no t recognize any impairment losses on its for-sale condominium inventory.

The Company assesses its portfolio of land held for both development and investment for impairment if the intent of the Company changes with respect to either the development of, or the expected holding period for, the land. The Company did no t recognize any impairment charges on its investment in land during the years ended December 31, 2020 and 2019. During the year ended December 31, 2018, the Company recognized an impairment charge of $ 826,000 related to a land parcel the Company had previously acquired for development and subsequently sold. This charge was determined as the excess of the Company's carrying basis over the sales price, and is included in casualty and impairment loss (gain), net on the accompanying Consolidated Statements of Comprehensive Income.

The Company evaluates its unconsolidated investments for other than temporary impairment, considering both the extent and amount by which the carrying value of the investment exceeds the fair value, and the Company’s intent and ability to hold the investment to recover its carrying value. The Company also evaluates its proportionate share of any impairment of assets held by unconsolidated investments. There were no other than temporary impairment losses recognized by any of the Company's investments in unconsolidated real estate entities during the years ended December 31, 2020, 2019 or 2018.

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Assets Held for Sale and Discontinued Operations

The Company presents the assets and liabilities of any communities which have been sold, or otherwise qualify as held for sale, separately in the Consolidated Balance Sheets. In addition, the results of operations for those assets that meet the definition of discontinued operations are presented as such in the accompanying Consolidated Statements of Comprehensive Income. Real estate assets held for sale are measured at the lower of the carrying amount or the fair value less the cost to sell. Both the real estate assets and corresponding liabilities are presented separately in the accompanying Consolidated Balance Sheets. Upon the classification of an asset as held for sale, no further depreciation is recorded. Disposals representing a strategic shift in operations (e.g., a disposal of a major geographic area, a major line of business or a major equity method investment) will be presented as discontinued operations, and for those assets qualifying for classification as discontinued operations, the specific components of net income presented as discontinued operations include net operating income, depreciation expense and interest expense, net. For periods prior to the asset qualifying for discontinued operations, the Company reclassifies the results of operations to discontinued operations. In addition, the net gain or loss (including any impairment loss) on the eventual disposal of assets held for sale will be presented as discontinued operations when recognized. A change in presentation for held for sale or discontinued operations has no impact on the Company's financial condition or results of operations. The Company combines the operating, investing and financing portions of cash flows attributable to discontinued operations with the respective cash flows from continuing operations on the accompanying Consolidated Statements of Cash Flows. The Company had one wholly-owned operating community that qualified as held for sale presentation at December 31, 2020.

Derivative Instruments and Hedging Activities

The Company enters into interest rate swap and interest rate cap agreements (collectively, "Hedging Derivatives") for interest rate risk management purposes and in conjunction with certain variable rate secured debt to satisfy lender requirements. The Company does not enter into Hedging Derivative transactions for trading or other speculative purposes. The Company assesses the effectiveness of qualifying cash flow and fair value hedges, both at inception and on an on-going basis. Hedge ineffectiveness is reported as a component of interest expense, net. The fair values of Hedging Derivatives that are in an asset position are recorded in prepaid expenses and other assets. The fair value of Hedging Derivatives that are in a liability position are included in accrued expenses and other liabilities. The Company does not present or disclose the fair value of Hedging Derivatives on a net basis. Fair value changes for derivatives that are not in qualifying hedge relationships are reported as a component of interest expense, net.  For the Hedging Derivative positions that the Company has determined qualify as effective cash flow hedges, the Company has recorded the cumulative changes in the fair value of Hedging Derivatives in other comprehensive loss.  Amounts recorded in accumulated other comprehensive loss will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flow. The effective portion of the change in fair value of the Hedging Derivatives that the Company has determined qualified as effective fair value hedges is reported as an adjustment to the carrying amount of the corresponding debt being hedged. See Note 11, “Fair Value,” for further discussion of derivative financial instruments.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications have been made to amounts in prior years' notes to financial statements to conform to current year presentations as a result of changes in held for sale classification, disposition activity and segment classification.

Leases

The Company is party to leases as both a lessor and a lessee, primarily as follows:

• lessor of residential and commercial space within its apartment communities; and

• lessee under (i) ground leases for land underlying current operating or development communities and certain commercial and parking facilities and (ii) office leases for its corporate headquarters and regional offices.

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Lessee Considerations

The Company assesses whether a contract is or contains a lease based on whether the contract conveys the right to control the use of an identified asset, including specified portions of larger assets, for a period of time in exchange for consideration. The Company’s leases include both fixed and variable lease payments, which are based on an index or rate such as the consumer price index (CPI) or percentage rents based on total sales. Lease payments included in the lease liability include only payments that depend on an index or rate. For leases that have options to extend the term or terminate the lease early, the Company only factored the impact of such options into the lease term if the option was considered reasonably certain to be exercised. The Company determined the discount rate associated with its ground and office leases on a lease by lease basis using the Company’s actual borrowing rates as well as indicative market pricing for longer term rates and taking into consideration the remaining term of each of the lease agreements.

Lessor Considerations

The Company evaluates leases in which it is the lessor, which are composed of residential and commercial leases at its apartment communities, and determined these leases to be operating leases. For lease agreements that provide for rent concessions and/or scheduled fixed and determinable rent increases, rental income is recognized on a straight-line basis over the noncancellable term of the lease, which, for residential leases, is generally one year. Some of the Company’s commercial leases have fixed-price renewal options, and the lessee may be able to exercise its renewal option at an amount less than the fair value of the rent at such time. The Company only includes renewal options in the lease term if, at the commencement of the lease, it is reasonably certain that the lessee will exercise this option.

Additionally, for the Company’s residential and commercial leases, which are comprised of the lease component and common area maintenance as a non-lease component, the Company determined that (i) the leases are operating leases, (ii) the lease component is the predominant component and (iii) that all components of its operating leases share the same timing and pattern of transfer.

The Company changed its presentation of charges for uncollectible lease revenue associated with its residential and commercial leasing activity, reflecting those amounts as a component of rental and other income on the accompanying Consolidated Statement of Comprehensive Income beginning with the year ended December 31, 2019. However, in accordance with its prospective adoption of the lease standard, the Company did not adjust the presentation of charges for uncollectible lease revenue associated with its residential and commercial leasing activity as a component of operating expenses, excluding property taxes, on the accompanying Consolidated Statement of Comprehensive Income for the year ended December 31, 2018.

Revenue and Gain Recognition

Under ASU 2014-09, Revenue from Contracts with Customers, the Company recognizes revenue in accordance with the transfer of goods and services to customers at an amount that reflects the consideration that the Company expects to be entitled to for those goods and services. The majority of the Company’s revenue is derived from residential and commercial rental income and other lease income, which are accounted for under ASC 842, Leases, discussed above. The Company's revenue streams that are not accounted for under ASC 842 include:

• Management fees - The Company has investment interests in real estate joint ventures, for which the Company may manage (i) the venture, (ii) the associated operating communities owned by the ventures and/or (iii) the development or redevelopment of those operating communities. For these activities, the Company receives asset management, property management, development and/or redevelopment fee revenue. The performance obligation is the management of the venture, community or other defined task such as the development or redevelopment of the community. While the individual activities that comprise the performance obligation of the management fees can vary day to day, the nature of the overall performance obligation to provide management service is the same and considered by the Company to be a series of services that have the same pattern of transfer to the customer and the same method to measure progress toward satisfaction of the performance obligation. The Company recognizes revenue for fees as earned on a monthly basis.

• Rental and non-rental related income - The Company recognizes revenue for new rental related income not included as components of a lease, such as reservation and application fees, as well as for non-rental related income, as earned.

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• Gains or losses on sales of real estate - The Company accounts for the sale of real estate assets and any related gain recognition in accordance with the accounting guidance applicable to sales of real estate, which establishes standards for recognition of profit on all real estate sales transactions, other than commercial land sales. The Company recognizes the sale, and associated gain or loss from the disposition when the criteria for the sale of an asset have been met, which include when (i) a contract exists and (ii) the buyer obtained control of the nonfinancial asset that was sold. In addition, a gain or loss recognized on the sale of a nonfinancial asset to an unconsolidated entity is recognized at 100%, and not the Company’s proportionate ownership percentage.

The following table provides details of the Company’s revenue streams disaggregated by the Company’s reportable operating segments, further discussed in Note 8, “Segment Reporting,” for the years ended December 31, 2020, 2019 and 2018. The segments are classified based on the individual community's status at January 1, 2020 for the years ended December 31, 2020 and 2019, and at January 1, 2019 for the year ended December 31, 2018. Segment information for total revenue has been adjusted to exclude the real estate assets that were sold from January 1, 2018 through December 31, 2020, or otherwise qualify as held for sale as of December 31, 2020, as described in Note 6, "Real Estate Disposition Activities." Additionally, as discussed above, the Company changed its presentation of charges for uncollectible lease revenue beginning with the year ended December 31, 2019, including it as an adjustment to revenue and not as a component of operating expenses. In order to provide comparability between periods presented in the Company's segment reporting, the Company has included charges for uncollectible lease revenue for its segment results as a component of revenue for the year ended December 31, 2018. Total revenue for the year ended December 31, 2018 as presented in the following table includes $ 14,072,000 of charges for uncollectible lease revenue. See Note 8, "Segment Reporting," for further discussion (dollars in thousands):

						Established Communities						Other Stabilized Communities						Development/ Redevelopment Communities						Non- allocated (1)						Total
For the year ended December 31, 2020
Management, development and other fees						$	—					$	—					$	—					$	3,819					$	3,819
Rental and non-rental related income (2)						6,970						1,790						1,064						—						9,824
Total non-lease revenue (3)						6,970						1,790						1,064						3,819						13,643
Lease income (4)						2,021,232						138,113						82,937						—						2,242,282
Business interruption insurance proceeds						115						270						—						—						385
Total revenue						$	2,028,317					$	140,173					$	84,001					$	3,819					$	2,256,310
For the year ended December 31, 2019
Management, development and other fees						$	—					$	—					$	—					$	4,960					$	4,960
Rental and non-rental related income (2)						7,028						1,224						400						—						8,652
Total non-lease revenue (3)						7,028						1,224						400						4,960						13,612
Lease income (4)						2,099,273						108,756						28,376						—						2,236,405
Business interruption insurance proceeds						987						454						—						—						1,441
Total revenue						$	2,107,288					$	110,434					$	28,776					$	4,960					$	2,251,458
For the year ended December 31, 2018
Management Fees						$	—					$	—					$	—					$	3,572					$	3,572
Rental and non-rental related income (2)						4,245						1,732						269						—						6,246
Total non-lease revenue (3)						4,245						1,732						269						3,572						9,818
Lease income (4)						1,727,299						236,852						120,553						—						2,084,704
Business interruption insurance proceeds						26						—						—						—						26
Total revenue						$	1,731,570					$	238,584					$	120,822					$	3,572					$	2,094,548

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(1) Revenue represents third-party management, asset management and developer fees and miscellaneous income which are not allocated to a reportable segment.

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(2) Amounts include revenue streams related to leasing activities that are not considered components of a lease, including but not limited to, apartment hold fees and application fees, as well as revenue streams not related to leasing activities, including but not limited to, vendor revenue sharing, building advertising, vending and dry cleaning revenue.

(3) Represents all revenue accounted for under ASU 2014-09.

(4) Amounts include all revenue streams derived from residential and commercial rental income and other lease income, which are accounted for under ASC 842.

Due to the nature and timing of the Company’s identified revenue streams, there are no material amounts of outstanding or unsatisfied performance obligations as of December 31, 2020.

Lease Revenue Reserves

The Company assesses the collectability of its lease revenue and receivables on an on-going basis. Under ASC 842, Lease Accounting, the Company assesses the probability of receiving all remaining lease amounts due on a lease by lease basis, reserving for revenue and the related receivables for those leases where collection of substantially all of the remaining lease payments is not probable. Subsequently, the Company will only recognize revenue to the extent cash is received. If the Company determines that collection of the remaining lease payments becomes probable at a future date, the Company will recognize the cumulative revenue that would have been recorded under the original lease agreement.

In addition to the specific reserves recognized under ASC 842, the Company also evaluates its lease receivables for collectability at a portfolio level under ASC 450, Contingencies – Loss Contingencies. The Company recognizes a reserve under ASC 450 when the uncollectible revenue is probable and reasonably estimable. The Company applies this reserve to the population of the Company’s revenue and receivables not specifically addressed as part of the specific ASC 842 reserve.

COVID-19 Pandemic

In March 2020, the World Health Organization designated COVID-19 as a pandemic. While the Company has taken various actions in response to the COVID-19 pandemic, the ultimate impact on its consolidated results of operations, cash flows, financial condition and liquidity will depend on (i) the duration and severity of the pandemic, (ii) the effectiveness of vaccines and the timing of vaccine availability, (iii) the duration and nature of governmental responses to contain the spread of the disease and assist consumers and businesses, (iv) consumer and business responses to the pandemic, including preferences for where and how to live and work, and (iv) how quickly and to what extent normal economic and operating conditions can resume. Because of this uncertainty, any estimate of the expected impact of the COVID-19 pandemic on results of operations, cash flows, financial condition, or liquidity for periods beyond the year ended December 31, 2020 is uncertain.

As of December 31, 2020, the Company assessed the collectibility of the outstanding lease income receivables as a result of the impact of the COVID-19 pandemic on its residential and commercial lease portfolios. The Company recorded an aggregate offset to income for uncollectible lease revenue for its residential and commercial portfolios of $ 66,763,000 for the year ended December 31, 2020 under ASC 842 and ASC 450, Contingencies.

Recently Issued and Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This ASU requires entities to estimate a lifetime expected credit loss for most financial assets, including (i) trade and other receivables, (ii) other long term financings including available for sale and held-to-maturity debt securities and (iii) loans. Subsequently, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which amends the scope of ASU 2016-13 and clarified that receivables arising from operating leases are not within the scope of the standard and should continue to be accounted for in accordance with the leases standard (Topic 842). The new standard was adopted on January 1, 2020 and does not have a material effect on the Company’s financial position or results of operations.

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			12/31/20						12/31/19
Fixed rate unsecured notes (1)			$	6,500,000					$	5,850,000
Variable rate unsecured notes (1)			—						300,000
Term Loans (1)			250,000						250,000
Fixed rate mortgage notes payable—conventional and tax-exempt (2)			408,964						479,221
Variable rate mortgage notes payable—conventional and tax-exempt (2)			470,850						476,150
Total mortgage notes payable and unsecured notes and Term Loans			7,629,814						7,355,371
Credit Facility			—						—
Total mortgage notes payable, unsecured notes, Term Loans and Credit Facility			$	7,629,814					$	7,355,371

_________________________________

(1)     Balances at December 31, 2020 and 2019 exclude $ 10,380 and $ 8,610 , respectively, of debt discount, and $ 37,615 and $ 32,742 , respectively, of deferred financing costs, as reflected in unsecured notes, net on the accompanying Consolidated Balance Sheets.

(2)     Balances at December 31, 2020 and 2019 exclude $ 14,478 and $ 14,464 of debt discount, respectively, and $ 3,004 and $ 3,265 , respectively, of deferred financing costs, as reflected in mortgage notes payable, net on the accompanying Consolidated Balance Sheets.

The following debt activity occurred during the year ended December 31, 2020:

• In February 2020, the Company issued $ 700,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement for net proceeds of approximately $ 694,701,000 . The notes mature in March 2030 and were issued at a 2.30 % interest rate.

• In February 2020, the Company refinanced the secured borrowing for Avalon San Bruno III. The secured borrowing had a fixed interest rate of 3.08 % and was refinanced for a principal balance of $ 51,000,000 , with a fixed interest rate of 2.38 % and maturity date of March 2027.

• In March 2020, the Company repaid (i) $ 400,000,000 principal amount of its 3.625 % unsecured notes in advance of the October 2020 scheduled maturity and (ii) $ 250,000,000 principal amount of its 3.95 % unsecured notes in advance of the January 2021 scheduled maturity. In conjunction with these repayments, the Company recognized a loss on debt extinguishment of $ 9,170,000 for prepayment penalties and the non-cash write-off of unamortized deferred financing costs.

• In May 2020, the Company issued $ 600,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement for net proceeds of approximately $ 593,430,000 . The notes mature in January 2031 and were issued at a 2.45 % interest rate.

• In May 2020, the Company repaid $ 300,000,000 principal amount of its variable rate unsecured notes in advance of the January 2021 scheduled maturity, recognizing a charge of $ 268,000 for the non-cash write-off of deferred financing costs.

• In August 2020, the Company repaid $ 67,904,000 principal amount of 4.18 % fixed rate debt secured by Avalon Hoboken at par in advance of its December 2020 maturity date.

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At December 31, 2020, the Company has a $ 1,750,000,000 revolving variable rate unsecured credit facility with a syndicate of banks (the “Credit Facility”) which matures in February 2024. The Credit Facility bears interest at varying levels based on (i) the London Interbank Offered Rate (“LIBOR”) applicable to the period of borrowing for a particular draw of funds from the facility (e.g., one month to maturity, three months to maturity, etc.) and (ii) the rating levels issued for our unsecured notes. The current stated pricing for drawn borrowings is LIBOR plus 0.775 % per annum ( 0.92 % at December 31, 2020), assuming a one month borrowing rate. The annual facility fee for the Credit Facility remained 0.125 %, resulting in a fee of $ 2,188,000 annually based on the $ 1,750,000,000 facility size and based on the Company's current credit rating.

The Company had no borrowings outstanding under the Credit Facility and had $ 2,900,000 and $ 11,488,000 outstanding in letters of credit that reduced the borrowing capacity as of December 31, 2020 and 2019, respectively. In addition, the Company had $ 32,079,000 and $ 24,939,000 outstanding in additional letters of credit on a separate facility unrelated to the Credit Facility as of December 31, 2020 and 2019, respectively.

In the aggregate, secured notes payable mature at various dates from April 2021 through July 2066, and are secured by certain apartment communities (with a net carrying value of $ 1,448,551,000 , excluding communities classified as held for sale, as of December 31, 2020).

The weighted average interest rate of the Company's fixed rate secured notes payable (conventional and tax-exempt) was 3.8 % and 3.9 % at December 31, 2020 and 2019, respectively. The weighted average interest rate of the Company's variable rate secured notes payable (conventional and tax exempt) including the effect of certain financing related fees, was 1.7 % and 3.2 % at December 31, 2020 and 2019, respectively.

Scheduled payments and maturities of secured notes payable and unsecured notes outstanding at December 31, 2020 are as follows (dollars in thousands):

Year						Secured notes principal payments						Secured notes maturities						Unsecured notes and Term Loans maturities						Stated interest rate of unsecured notes and Term Loans
2021						$	9,304					$	27,844					$	—					N/A
2022						9,918						—						450,000						2.950		%
																		100,000						LIBOR + 0.90 %
2023						10,739						—						350,000						4.200		%
																		250,000						2.850		%
2024						11,677						—						300,000						3.500		%
																		150,000						LIBOR + 0.85 %
2025						12,408						—						525,000						3.450		%
																		300,000						3.500		%
2026						13,445						—						475,000						2.950		%
																		300,000						2.900		%
2027						15,880						236,100						400,000						3.350		%
2028						20,707						—						450,000						3.200		%
2029						11,742						66,250						450,000						3.300		%
2030						12,384						—						700,000						2.300		%
Thereafter						176,078						245,338						600,000						2.450		%
																		350,000						3.900		%
																		300,000						4.150		%
																		300,000						4.350		%
						$	304,282					$	575,532					$	6,750,000

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The Company's unsecured notes are redeemable at the Company's option, in whole or in part, generally at a redemption price equal to the greater of (i) 100 % of their principal amount or (ii) the sum of the present value of the remaining scheduled payments of principal and interest discounted at a rate equal to the yield on U.S. Treasury securities with a comparable maturity plus a spread between 20 and 45 basis points depending on the specific series of unsecured notes, plus accrued and unpaid interest to the redemption date.

The Company is subject to financial covenants contained in the Credit Facility, the Term Loans and the indentures under which the unsecured notes were issued. The principal financial covenants include the following:

• limitations on the amount of total and secured debt in relation to our overall capital structure;

• limitations on the amount of our unsecured debt relative to the undepreciated basis of real estate assets that are not encumbered by property-specific financing; and

• minimum levels of debt service coverage.

The Company was in compliance with these covenants at December 31, 2020.

As of December 31, 2020 and 2019, the Company's charter had authorized for issuance a total of 280,000,000 shares of common stock and 50,000,000 shares of preferred stock.

During the year ended December 31, 2020, the Company:

i. issued 1,902 shares of common stock in connection with stock options exercised;

ii. issued 2,747 common shares through the Company's dividend reinvestment plan;

iii. issued 165,545 common shares in connection with restricted stock grants and the conversion of performance awards to restricted shares;

iv. withheld 74,173 common shares to satisfy employees' tax withholding and other liabilities;

v. issued 20,161 common shares through the Employee Stock Purchase Plan;

vi. canceled 7,683 common shares of restricted stock upon forfeiture; and

vii. purchased 1,225,790 common shares through the 2020 Stock Repurchase Program, discussed below.

Any deferred compensation related to the Company’s stock option, restricted stock and performance award grants during the year ended December 31, 2020 is not reflected on the accompanying Consolidated Balance Sheet as of December 31, 2020, and will not be reflected until recognized as compensation cost.

In July 2020, the Company’s Board of Directors voted to terminate the Company’s prior $ 500,000,000 Stock Repurchase Program (the "Amended 2005 Stock Repurchase Program") and approved a new stock repurchase program under which the Company may acquire shares of its common stock in open market or negotiated transactions up to an aggregate purchase price of $ 500,000,000 (the "2020 Stock Repurchase Program"). Purchases of common stock under the 2020 Stock Repurchase Program may be exercised from time to time in the Company’s discretion and in such amounts as market conditions warrant. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The 2020 Stock Repurchase Program does not have an expiration date and may be suspended or terminated at any time without prior notice. During the year ended December 31, 2020, the Company repurchased 1,225,790 shares of common stock at an average price of $ 149.99 per share. As of December 31, 2020, the Company had $ 316,148,000 remaining authorized for purchase under this program.

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Investments in Unconsolidated Real Estate Entities

The Company accounts for its investments in unconsolidated real estate entities under the equity method of accounting, as discussed in Note 1, “Organization, Basis of Presentation and Significant Accounting Policies,” under Principles of Consolidation . The significant accounting policies of the Company's unconsolidated real estate entities are consistent with those of the Company in all material respects. Certain of these investments are subject to various buy‑sell provisions or other rights which are customary in real estate joint venture agreements. The Company and its partners in these entities may initiate these provisions to either sell the Company's interest or acquire the joint venture interest from the Company's partner.

The following presents the Company's activities in unconsolidated real estate entities for the years ended December 31, 2020, 2019 and 2018:

Archstone Multifamily Partners AC LP (the “U.S. Fund”) —The Company is the general partner of the U.S. Fund and has a 28.6 % combined general partner and limited partner equity interest. The Company acquired its interest in the U.S. Fund as part of the Archstone Acquisition (as defined in Note 5, “Investments in Real Estate Entities,” of the Consolidated Financial Statements in Item 8 in the Company's Form 10-K filed February 22, 2019). During 2020, the U.S. Fund sold Avalon Venice on Rose, located in Venice, CA, containing 70 apartment homes and 9,000 square feet of commercial space for $ 65,000,000 . The Company's proportionate share of the gain in accordance with GAAP was $ 5,157,000 . In conjunction with the disposition of the community, the U.S. Fund repaid $ 27,117,000 of secured indebtedness at par. The U.S. Fund sold one community in each 2019 and 2018, and the Company's proportionate share of the gains in accordance with GAAP was $ 5,788,000 and $ 8,636,000 , respectively.

Multifamily Partners AC JV LP (the “AC JV”) —The Company has a 20.0 % equity interest in the AC JV, and acquired its interest as part of the Archstone Acquisition. During 2018, the AC JV sold one community, and the Company's proportionate share of the gain in accordance with GAAP was $ 2,019,000 .

Legacy JV —As part of the Archstone Acquisition the Company entered into a limited liability company agreement with Equity Residential, through which it assumed obligations of Archstone in the form of preferred interests, some of which are governed by tax protection arrangements (the “Legacy JV”). The Company has a 40.0 % interest in the Legacy JV. During the years ended December 31, 2020, 2019 and 2018, the Legacy JV redeemed certain of the preferred interests and paid accrued dividends, of which the Company's portion was $ 1,000,000 , $ 1,400,000 and $ 1,120,000 , respectively. At December 31, 2020, the remaining preferred interests had an aggregate liquidation value of $ 35,382,000 , the Company's 40.0 % share of which was included in accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.

North Point II JV, LP —During 2016, the Company entered into a joint venture to develop, own, and operate AVA North Point, an apartment community located in Cambridge, MA, which completed construction during 2018 and contains 265 apartment homes. The Company owned a 55.0 % interest in the venture. During the year ended December 31, 2019, the Company acquired the 45.0 % equity interest of AVA North Point that was owned by the venture partner, for a purchase price of $ 71,280,000 . Upon acquisition, the Company consolidated AVA North Point as a wholly-owned operating community.

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NYTA MF Investors LLC (“NYC Joint Venture”) —During 2018, the Company contributed five wholly-owned operating communities located in New York City, NY to a newly formed joint venture with the intent to own and operate the communities. The Company retained a 20.0 % interest in the venture with the partners sharing in returns in accordance with their ownership interests. In conjunction with the formation of the venture in 2018, the Company sold the five communities, containing an aggregate of 1,301 apartment homes and 58,000 square feet of commercial space, to the venture for a sales price of $ 758,900,000 . The Company received net cash proceeds of $ 276,799,000 and the venture assumed $ 395,939,000 of secured indebtedness from the Company. The Company recognized a gain on sale of $ 179,861,000 , including the recognition of the Company's 20.0 % retained interest at fair value.

Avalon Alderwood MF Member, LLC —During 2019, the Company entered into a joint venture to develop, own, and operate Avalon Alderwood Mall, an apartment community located in Lynnwood, WA, which is currently under construction and expected to contain 328 apartment homes (unaudited) when complete. The Company has a 50.0 % interest in the venture, which is considered a VIE, though the Company was not considered to be the primary beneficiary because it shares control with its venture partner. The Company and its venture partner share decision making authority for all significant aspects of the venture's activities including, but not limited to, changes in the ownership or capital structure, and the capital budget to construct Avalon Alderwood Mall.

Arts District Joint Venture —During 2020, the Company entered into a joint venture to develop, own, and operate AVA Arts District, an apartment community located in Los Angeles, CA, which is currently under construction and expected to contain 475 apartment homes (unaudited) and 56,000 square feet (unaudited) of commercial space when completed. The Company has a 25.0 % interest in the venture with a total expected equity investment of approximately $ 27,600,000 , of which $ 19,500,000 has already been contributed. The venture has secured a $ 165,600,000 variable rate construction loan to fund approximately 60 % of the development of AVA Arts District, of which no amounts have been drawn as of December 31, 2020. The venture will commence draws under the loan subsequent to required equity contributions by the venture partners. The Company has guaranteed the construction loan on behalf of the venture, and any obligations under the construction loan guarantee, except for obligations arising from misconduct by the Company, are required capital contributions of the partners based on ownership interest. The venture is considered an unconsolidated VIE as the Company was not considered to be the primary beneficiary due to shared control and decision making with its venture partner. The Company and its venture partner share decision making authority for all significant aspects of the venture's activities including, but not limited to, changes in the ownership, changes to the development plan or budget, and major operating decisions including annual business plans.

AvalonBay Value Added Fund II, L.P. (“Fund II”) —During 2018, the Company held an investment in and received the final distributions for the AvalonBay Value Added Fund II, L.P. (“Fund II”), a private, discretionary real estate investment vehicle formed in 2008. The Company completed the dissolution of Fund II in 2018. A wholly owned subsidiary of the Company was the general partner of Fund II. The Company had an equity interest of 31.3 % in Fund II, and upon achievement of a threshold return the Company had a right to incentive distributions for its promoted interest based on current returns earned by Fund II which represented 40.0 % of further Fund II distributions, which was in addition to its proportionate share of the remaining 60.0 % of distributions. During the year ended December 31, 2018, the Company recognized income of $ 925,000 for its promoted interest which was reported as a component of equity in income of unconsolidated real estate entities on the accompanying Consolidated Statements of Comprehensive Income.

The following is a combined summary of the financial position of the entities accounted for using the equity method discussed above and presented on the accompanying Consolidated Balance Sheets as of the dates presented, including development joint ventures started and unconsolidated communities sold during the respective periods (dollars in thousands):

			12/31/20						12/31/19
Assets:
Real estate, net			$	1,249,730					$	1,204,470
Other assets			255,606						196,488
Total assets			$	1,505,336					$	1,400,958
Liabilities and partners' capital:
Mortgage notes payable, net (1)			$	751,257					$	782,257
Other liabilities			163,808						157,379
Partners' capital			590,271						461,322
Total liabilities and partners' capital			$	1,505,336					$	1,400,958

_________________________________

(1)    The Company has not guaranteed the outstanding debt, nor does the Company have any obligation to fund this debt should the unconsolidated entity be unable to do so.

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The following is a combined summary of the operating results of the entities accounted for using the equity method discussed above and presented on the accompanying Consolidated Statements of Comprehensive Income, for the years presented (dollars in thousands):

			For the year ended
			12/31/20						12/31/19 (1)						12/31/18 (2)
Rental and other income			$	118,474					$	144,431					$	92,533
Operating and other expenses			( 49,509 )						( 55,732 )						( 35,840 )
Gain on sale of communities			18,450						21,748						54,202
Interest expense, net			( 31,982 )						( 33,896 )						( 22,500 )
Depreciation expense			( 34,606 )						( 58,387 )						( 26,706 )
Net income			$	20,827					$	18,164					$	61,689
Company's share of net income (3)			$	8,538					$	10,779					$	17,519
Amortization of excess investment and other			( 2,116 )						( 2,127 )						( 2,249 )
Equity in income from unconsolidated real estate investments			$	6,422					$	8,652					$	15,270

_________________________________

(1)    Amounts include results from AVA North Point through the date the Company acquired its venture partner's 45.0 % equity interest.

(2)    Amounts include results from the NYC Joint Venture from the date the venture was formed.

(3)    Includes the Company's share of gain on sale of communities and income recognized for its promoted interest.

Investments in Consolidated Real Estate Entities

During the year ended December 31, 2020, the Company did no t acquire any communities. In addition to AVA North Point, during the year ended December 31, 2019, the Company acquired five communities, containing an aggregate 1,175 apartment homes, which were acquired for an aggregate purchase price of $ 345,450,000 . During the year ended December 31, 2018, the Company acquired four communities, containing an aggregate 1,096 apartment homes, which were acquired for an aggregate purchase price of $ 334,450,000 .

The Company accounted for these as asset acquisitions and recorded the acquired assets and assumed liabilities, including identifiable intangibles, at their relative fair values based on the purchase price and acquisition costs incurred. The Company used third party pricing or internal models for the values of the land, a valuation model for the values of the buildings, and an internal model to determine the fair values of the remaining real estate assets and in-place leases. Given the heterogeneous nature of multifamily real estate, the fair values for the land, debt, real estate assets and in-place leases incorporated significant unobservable inputs and therefore are considered to be Level 3 prices within the fair value hierarchy.

During the year ended December 31, 2020, the Company sold nine wholly-owned operating communities, containing an aggregate of 1,817 apartment homes for an aggregate sales price of $ 627,750,000 and an aggregate gain in accordance with GAAP of $ 340,444,000 .

Details regarding the real estate sales, excluding for-sale residential condominiums at the Park Loggia, are summarized in the following table (dollars in thousands):

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Community Name						Location						Period of sale						Apartment homes						Debt						Gross sales price						Net cash proceeds
Avalon Shelton						Shelton, CT						Q120						250						$	—					$	64,750					$	63,030
Avalon Tinton Falls						Tinton Falls, NJ						Q220						216						—						64,900						63,371
Avalon Towers						Long Beach, NY						Q320						109						—						54,000						53,079
Avalon Somerset						Somerset, NJ						Q420						384						—						110,000						107,415
eaves San Rafael						San Rafael, CA						Q420						254						—						106,000						104,462
Avalon Cohasset						Cohasset, MA						Q420						220						—						90,250						88,673
Avalon Wilton on Danbury Rd						Wilton, CT						Q420						100						—						34,750						33,744
Avalon Stratford						Stratford, CT						Q420						130						—						30,600						29,808
eaves Diamond Heights						San Francisco, CA						Q420						154						—						72,500						69,469
Other real estate (1)						Brooklyn, NY						2020						N/A						—						6,500						6,722
Total of 2020 asset sales																		1,817						$	—					$	634,250					$	619,773
Total of 2019 asset sales																		1,660						$	21,700					$	431,280					$	422,041
Total of 2018 asset sales																		3,099						$	395,939					$	1,378,289					$	883,313

_________________________________

(1)     Represents the sale of commercial space.

As of December 31, 2020, the Company had one community that qualified as held for sale.

The Park Loggia

The Park Loggia, located in New York, NY, contains 172 for-sale residential condominiums and 66,000 square feet of commercial space. During the year ended December 31, 2020, the Company sold 70 residential condominiums at The Park Loggia, for gross proceeds of $ 216,372,000 resulting in a gain in accordance with GAAP of $ 8,213,000 . As of December 31, 2020, there were 102 residential condominiums remaining to be sold. The Company incurred $ 5,662,000 , $ 3,812,000 and $ 1,044,000 during the years ended December 31, 2020, 2019 and 2018, respectively, in marketing, operating and administrative costs. All amounts are included in net for-sale condominium activity, on the accompanying Consolidated Statements of Comprehensive Income. As of December 31, 2020 and 2019, the unsold for-sale residential condominiums at The Park Loggia have an aggregate carrying value of $ 267,219,000 and $ 457,809,000 , respectively, presented as for-sale condominium inventory on the accompanying Consolidated Balance Sheets. The Company recognized a net deferred tax liability of $ 5,782,000 during the year ended December 31, 2019 for the GAAP to tax basis differences of The Park Loggia and the associated 66,000 square feet of commercial space. See Note 1, "Organization, Basis of Presentation and Significant Accounting Policies," for further discussion of the income tax associated to The Park Loggia.

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Employment Agreements and Arrangements

At December 31, 2020, the Company has no employment agreements with its executive officers other than an agreement executed on December 4, 2020, with Benjamin W. Schall, who joined the Company on January 25, 2021 as President and a member of the Board of Directors.

The standard restricted stock and option agreements used by the Company in its compensation program provide that upon an employee's termination without cause or the employee's Retirement (as defined in the agreement), all outstanding stock options and restricted shares of stock held by the employee will vest, and the employee will have up to 12 months or until the fifth anniversary of the grant date, if later, or until the option expiration date, if earlier, to exercise any options then held. Under the agreements, Retirement generally means a termination of employment and other business relationships, other than for cause, after attainment of age 50 , provided that (i) the employee has worked for the Company for at least 10 years, (ii) the employee's age at Retirement plus years of employment with the Company equals at least 70 , (iii) the employee provides at least six months written notice of intent to retire, and (iv) the employee enters into a one year non-compete and employee non-solicitation agreement.

The Company also has an Officer Severance Program (the “Program”). Under the Program, in the event an officer who is not otherwise covered by a severance arrangement is terminated (other than for cause), or chooses to terminate his or her employment for good reason (as defined), in either case in connection with or within 24 months following a sale event (as defined) of the Company, such officer will generally receive a cash lump sum payment equal to a multiple of the officer's covered compensation (base salary plus annual cash bonus). The multiple is one time for vice presidents and senior vice presidents, two times for executive vice presidents and three times for the chief executive officer. The officer's restricted stock and options would also vest. Costs related to the Program are deferred and recognized over the requisite service period when considered by management to be probable and estimable.

Legal Contingencies

The Company accounts for recoveries from legal matters as a reduction in the legal and related costs incurred associated with the matter, with recoveries in excess of these costs reported as a gain or, where appropriate, a reduction in the net cost basis of a community to which the suit related. During the years ended December 31, 2019 and 2018, the Company recognized $ 6,292,000 and $ 946,000 in legal recoveries, respectively. Legal recoveries recognized during the year ended December 31, 2019 include $ 3,126,000 in proceeds related to a former Development Right and $ 2,237,000 in proceeds related to a construction defect at a community, reported as a component of general and administrative expense on the accompanying Consolidated Statements of Comprehensive Income. Amounts recognized during the year ended December 31, 2018 include $ 554,000 in legal settlement proceeds relating to construction defects at communities acquired as part of the Archstone Acquisition, reported as a component of casualty and impairment loss, net on the accompanying Consolidated Statements of Comprehensive Income. There were no material receipts during the year ended December 31, 2020.

The Company is involved in various other claims and/or administrative proceedings that arise in the ordinary course of its business. While no assurances can be given, the Company does not currently believe that any of these outstanding litigation matters, individually or in the aggregate, will have a material adverse effect on its financial condition or results of operations.

Lease Obligations

The Company owns 10 apartment communities and two commercial properties, located on land subject to ground leases expiring between May 2041 and March 2142. The Company has purchase options for all ground leases expiring prior to 2060. The ground leases for nine of the 10 of the apartment communities and the rest of the ground leases, are operating leases, with rental expense recognized on a straight-line basis over the lease term. In addition, the Company is party to 14 leases for its corporate and regional offices with varying terms through 2031, all of which are operating leases.

As of December 31, 2020 and 2019, the Company has total operating lease assets of $ 133,581,000 and $ 103,063,000 , respectively, and lease obligations of $ 161,313,000 and $ 120,261,000 , respectively, reported as components of right of use lease assets and lease liabilities, respectively, on the accompanying Consolidated Balance Sheets. The Company incurred costs of $ 16,011,000 , $ 14,371,000 and $ 21,788,000 in the years ended December 31, 2020, 2019 and 2018, respectively, related to operating leases.

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The Company has one apartment community located on land subject to a ground lease and two leases for portions of parking garages, adjacent to apartment communities, that are finance leases. As of December 31, 2020 and 2019, the Company has total finance lease assets of $ 21,685,000 and $ 21,898,000 , respectively, and total finance lease obligations of $ 20,166,000 and $ 20,207,000 , respectively, reported as components of right of use lease assets and lease liabilities, respectively, on the accompanying Consolidated Balance Sheets.

During the year ended December 31, 2018, the Company contributed a dual-branded apartment community, Avalon West Chelsea and AVA High Line, located on land subject to a single land lease, to the newly formed NYC Joint Venture. See Note 5, “Investments in Real Estate Entities,” for discussion of the formation of the venture.

The following table details the weighted average remaining lease term and discount rates for the Company’s ground and office leases:

Weighted-average remaining lease term - finance leases			25 years
Weighted-average remaining lease term - operating leases			42 years
Weighted-average discount rate - finance leases			4.63		%
Weighted-average discount rate - operating leases			4.74		%

The following tables detail the future minimum lease payments under the Company's current leases and a reconciliation of undiscounted and discounted cash flows for operating and finance leases (dollars in thousands):

			Payments due by period
			2021						2022						2023						2024						2025						Thereafter
Operating Lease Obligations			$	14,270					$	13,950					$	13,469					$	13,316					$	13,526					$	350,440
Finance Lease Obligations			1,080						1,082						1,084						1,087						1,089						39,044
			$	15,350					$	15,032					$	14,553					$	14,403					$	14,615					$	389,484

			Total undiscounted cash flows						Total lease liabilities						Difference between discounted and undiscounted cash flows
Operating Lease Obligations			$	418,971					$	161,313					$	257,658
Finance Lease Obligations			44,466						20,166						24,300
			$	463,437					$	181,479					$	281,958

The Company's reportable operating segments include Established Communities, Other Stabilized Communities and Development/Redevelopment Communities. Annually as of January 1, the Company determines which of its communities fall into each of these categories and generally maintains that classification throughout the year for the purpose of reporting segment operations, unless disposition or redevelopment plans regarding a community change.

• Established Communities (also known as Same Store Communities) are consolidated communities where the Company has a significant presence (New England, New York/New Jersey, Mid-Atlantic, Pacific Northwest, Northern and Southern California and the expansion markets of Southeast Florida and Denver, Colorado) and where a comparison of operating results from the prior year to the current year is meaningful, as these communities were owned and had stabilized occupancy as of the beginning of the prior year. The Established Communities for the year ended December 31, 2020, are communities that are consolidated for financial reporting purposes, had stabilized occupancy as of January 1, 2019, are not conducting or planning to conduct substantial redevelopment activities and are not held for sale or planned for disposition within the fiscal year. A community is considered to have stabilized occupancy at the earlier of (i) attainment of 90 % physical occupancy or (ii) the one year anniversary of completion of development or redevelopment.

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• Other Stabilized Communities includes all other completed consolidated communities that have stabilized occupancy, as defined above, as January 1, 2020, or which were acquired during the years ended December 31, 2020 or 2019. Other Stabilized Communities excludes communities that are conducting or planning to conduct substantial redevelopment activities within the fiscal year.

• Development/Redevelopment Communities consists of (i) consolidated communities that are either currently under construction, or were under construction during the fiscal year, which may be partially or fully complete and operating, (ii) consolidated communities where substantial redevelopment is in progress or is planned to begin during the fiscal year and (iii) communities under lease-up that have been complete for less than one year and have not reached stabilized occupancy, as defined above, as of January 1, 2020.

In addition, the Company owns land for future development and has other corporate assets that are not allocated to an operating segment.

The Company's segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing each segment's performance. The Company's chief operating decision maker is comprised of several members of its executive management team who use net operating income (“NOI”) as the primary financial measure for Established Communities and Other Stabilized Communities. NOI is defined by the Company as total property revenue less direct property operating expenses (including property taxes), and excluding corporate-level income (including management, development and other fees), corporate-level property management and other indirect operating expenses, expensed transaction, development and other pursuit costs, net of recoveries, interest expense, net, (gain) loss on extinguishment of debt, net, general and administrative expense, equity in income of unconsolidated real estate entities, depreciation expense, corporate income tax expense, casualty and impairment (gain) loss, net, gain on sale of communities, (gain) loss on other real estate transactions, net for-sale condominium activity and net operating income from real estate assets sold or held for sale. Although the Company considers NOI a useful measure of a community's or communities' operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities, as determined in accordance with GAAP. NOI excludes a number of income and expense categories as detailed in the reconciliation of NOI to net income.

A reconciliation of NOI to net income for years ended December 31, 2020, 2019 and 2018 is as follows (dollars in thousands):

			For the year ended
			12/31/20						12/31/19						12/31/18
Net income			$	827,706					$	786,103					$	974,175
Indirect operating expenses, net of corporate income			97,443						83,008						80,227
Expensed transaction, development and other pursuit costs, net of recoveries			12,399						4,991						3,265
Interest expense, net			214,151						203,585						220,974
Loss on extinguishment of debt, net			9,333						602						17,492
General and administrative expense			60,343						58,042						60,369
Equity in income of unconsolidated real estate entities			( 6,422 )						( 8,652 )						( 15,270 )
Depreciation expense			707,331						661,578						631,196
Income tax (benefit) expense			( 3,247 )						13,003						( 160 )
Casualty and impairment loss, net			—						—						215
Gain on sale of communities			( 340,444 )						( 166,105 )						( 374,976 )
Gain on other real estate transactions, net			( 440 )						( 439 )						( 345 )
Net for-sale condominium activity			( 2,551 )						3,812						1,044
Net operating income from real estate assets sold or held for sale			( 28,412 )						( 45,354 )						( 113,074 )
Net operating income			$	1,547,190					$	1,594,174					$	1,485,132

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The following is a summary of NOI from real estate assets sold or held for sale for the periods presented (dollars in thousands):

			For the year ended
			12/31/2020						12/31/2019						12/31/2018
Rental income from real estate assets sold or held for sale			$	44,951					$	73,168					$	175,915
Operating expenses from real estate assets sold or held for sale			( 16,539 )						( 27,814 )						( 62,841 )
Net operating income from real estate assets sold or held for sale			$	28,412					$	45,354					$	113,074

The primary performance measure for communities under development or redevelopment depends on the stage of completion. While under development, management monitors actual construction costs against budgeted costs as well as lease-up pace and rent levels compared to budget.

The following table provides details of the Company's segment information as of the dates specified (dollars in thousands). The segments are classified based on the individual community's status at January 1, 2020 for the years ended December 31, 2020 and 2019 and at January 1, 2019, for the year ended December 31, 2018. Segment information for the years ended December 31, 2020, 2019 and 2018 has been adjusted to exclude the real estate assets that were sold from January 1, 2018 through December 31, 2020, or otherwise qualify as held for sale as of December 31, 2020, as described in Note 6, “Real Estate Disposition Activities.”

In addition to NOI, the Company's CODM considers total revenue in assessing each segment's performance. As discussed in Note 1, "Organization, Basis of Presentation and Significant Accounting Policies," the Company changed its presentation of charges for uncollectible lease revenue beginning with the year ended December 31, 2019, including it as an adjustment to revenue and not as a component of operating expenses, as it is presented for prior year periods on the accompanying Consolidated Statements of Comprehensive Income. Consistent with how the Company's CODM evaluates total revenue, and to provide comparability between periods presented in the Company's segment reporting, the Company has included charges for uncollectible lease revenue for its segment results as a component of revenue for the year ended December 31, 2018. Total revenue for the year ended December 31, 2018 as presented in the following table includes $ 14,072,000 of charges for uncollectible lease revenue.

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			Total revenue						NOI						Gross real estate (1)
For the period ended December 31, 2020
Established
New England			$	297,674					$	193,053					$	2,617,725
Metro NY/NJ			445,939						305,408						4,235,524
Mid-Atlantic			341,311						237,063						3,511,960
Pacific Northwest			109,321						76,093						996,317
Northern California			378,362						283,012						3,201,926
Southern California			432,441						298,900						4,160,754
Expansion Markets			23,269						13,376						321,252
Total Established (2)			2,028,317						1,406,905						19,045,458
Other Stabilized			140,173						92,040						1,596,656
Development / Redevelopment			84,001						48,245						2,789,062
Land Held for Future Development			N/A						N/A						110,142
Non-allocated (3)			3,819						N/A						375,964
Total			$	2,256,310					$	1,547,190					$	23,917,282
For the period ended December 31, 2019
Established
New England			$	303,816					$	202,812					$	2,595,907
Metro NY/NJ			466,135						327,356						4,214,565
Mid-Atlantic			351,680						250,142						3,484,610
Pacific Northwest			113,021						82,186						990,563
Northern California			397,593						305,450						3,186,075
Southern California			451,640						321,776						4,131,539
Expansion Markets			23,403						13,578						320,355
Total Established (2)			2,107,288						1,503,300						18,923,614
Other Stabilized			110,434						74,814						1,587,398
Development / Redevelopment			28,776						16,060						2,086,519
Land Held for Future Development			N/A						N/A						—
Non-allocated (3)			4,960						N/A						559,777
Total			$	2,251,458					$	1,594,174					$	23,157,308
For the year ended December 31, 2018
Established
New England			$	223,594					$	148,310					$	1,890,304
Metro NY/NJ			379,968						271,767						3,367,198
Mid-Atlantic			284,381						200,381						2,669,040
Pacific Northwest			108,861						78,313						985,102
Northern California			340,247						262,055						2,753,596
Southern California			394,519						283,795						3,573,952
Expansion Markets (4)			N/A						N/A						N/A
Total Established (2)			1,731,570						1,244,621						15,239,192
Other Stabilized			238,584						159,745						3,063,670
Development / Redevelopment			120,822						80,766						2,652,968
Land Held for Future Development			N/A						N/A						84,712
Non-allocated (3)			3,572						N/A						504,230
Total			$	2,094,548					$	1,485,132					$	21,544,772

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(1)     Does not include gross real estate assets held for sale of $ 44,940 as of December 31, 2020 and gross real estate either sold or classified as held for sale subsequent to December 31, 2019 and 2018 of $ 401,152 and $ 732,397 , respectively.

(2)     Gross real estate for the Company's Established Communities includes capitalized additions of approximately $ 126,548 , $ 128,324 and $ 78,469 in 2020, 2019 and 2018, respectively.

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(3)     Revenue represents third-party management, accounting, and developer fees and miscellaneous income which are not allocated to a reportable segment. Gross real estate includes the for-sale residential condominiums at The Park Loggia, as discussed in Note 6, "Real Estate Disposition Activities."

(4) The Company had no communities in its Established Communities Expansion Markets for the year ended December 31, 2018.

The Company's Second Amended and Restated 2009 Equity Incentive Plan (the “2009 Plan”) includes an authorization to issue shares of the Company's common stock, par value $ 0.01 per share. At December 31, 2020, the Company had 6,913,585 shares remaining available to issue under the 2009 Plan, exclusive of shares that may be issued to satisfy currently outstanding awards such as stock options or performance awards. In addition, any awards that were outstanding under the Company's 1994 Stock Option and Incentive Plan (the “1994 Plan”) on May 21, 2009, the date the Company adopted the 2009 Plan, that are subsequently forfeited, canceled, surrendered or terminated (other than by exercise) will become available for awards under the 2009 Plan. The 2009 Plan provides for various types of equity awards to associates, officers, non-employee directors and other key personnel of the Company and its subsidiaries. The types of awards that may be granted under the 2009 Plan include restricted stock, restricted stock units, stock options that qualify as incentive stock options (“ISOs”) under Section 422 of the Code, non-qualified stock options, stock appreciation rights and performance awards, among others. No grants of stock options and other awards will be made after May 15, 2027, and no grants of incentive stock options will be made after February 16, 2027.

Information with respect to stock options granted under the 2009 and 1994 Plans is as follows:

			2009 Plan shares						Weighted average exercise price per share						1994 Plan shares						Weighted average exercise price per share
Options Outstanding, December 31, 2017			149,973						$	126.77					7,778						$	48.60
Exercised			( 32,756 )						126.24						( 7,778 )						48.60
Granted (1)			6,995						161.10						—						—
Forfeited			—						—						—						—
Options Outstanding, December 31, 2018			124,212						$	128.84					—						$	—
Exercised			( 109,804 )						129.47						—						—
Granted			—						—						—						—
Forfeited			—						—						—						—
Options Outstanding, December 31, 2019			14,408						$	124.05					—						$	—
Exercised			( 1,902 )						89.17						—						—
Granted			—						—						—						—
Forfeited			—						—						—						—
Options Outstanding, December 31, 2020			12,506						$	129.35					—						$	—
Options Exercisable:
December 31, 2018			117,217						$	126.91					—						$	—
December 31, 2019			14,408						$	124.05					—						$	—
December 31, 2020			12,506						$	129.35					—						$	—

_________________________________

(1)    Options granted during the year ended December 31, 2018 are a result of recipient elections to receive a portion of earned performance awards and time-vesting restricted stock in the form of stock options.

The following summarizes the exercise prices and contractual lives of options outstanding as of December 31, 2020:

2009 Plan Number of Options						Range—Exercise Price															Weighted Average Remaining Contractual Term (in years)
1,387						$ 110.00			-						$ 119.99						0.1
11,119						$ 130.00			-						$ 139.99						1.8
12,506

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Options outstanding and exercisable at December 31, 2020 had an intrinsic value of $ 389,000 . Options exercisable had a weighted average contractual life of 1.6 years. The intrinsic value of options exercised under the 2009 Plan during 2020, 2019 and 2018 was $ 251,000 , $ 7,970,000 and $ 3,016,000 , respectively. There were no stock options granted in 2020, 2019 and 2018, other than those elected under the Company's performance award plan discussed below.

The Company has a compensation framework under which share-based compensation granted is composed of annual restricted stock awards for which one third of the award vests annually over a three-year period, and multi-year long term incentive performance awards. For annual restricted stock awards, in lieu of time-vesting restricted stock, the recipient may elect to receive up to 100 % of the award value, in increments of 25 %, in the form of stock options, for which one third of the award vests annually over a three-year period. Under the Company's multi-year long term incentive compensation framework, the Company grants a target number of performance awards, with the ultimate award determined by the total shareholder return of the Company's common stock and/or operating performance metrics, measured in each case over a measurement period of up to three years . Performance units for awards granted in 2017 or earlier that were earned at the end of the measurement period were settled in the form of time-vesting restricted stock. Performance units for awards granted in 2018 and later years that are earned at the end of the measurement period are settled in fully vested shares of common stock and an amount of cash equal to the dividends that were paid, while the performance award was outstanding, on a number of shares equal to the number of units earned.

After the first year of the performance period, if the employee's employment terminates on account of death, disability, retirement, or termination without cause, the employee shall vest in a pro rata portion of the award (based on the employee's service time during the performance period), with such vested portion to be earned and converted into shares and the cash amount for the dividends described above at the end of the performance period based on actual achievement under the performance award. For other terminating events, performance awards are generally forfeited.

Information with respect to performance awards granted is as follows:

						Performance awards						Weighted average grant date fair value per award
Outstanding at December 31, 2017						251,770						$	155.25
Granted (1)						100,965						155.31
Change in awards based on performance (2)						5,990						148.79
Converted to restricted stock						( 88,477 )						148.79
Forfeited						( 3,119 )						160.33
Outstanding at December 31, 2018						267,129						$	157.21
Granted (3)						80,512						200.75
Change in awards based on performance (2)						( 16,760 )						142.03
Converted to restricted stock						( 73,072 )						142.03
Forfeited						( 4,377 )						166.44
Outstanding at December 31, 2019						253,432						$	176.27
Granted (4)						77,182						238.03
Change in awards based on performance (2)						18,112						177.26
Converted to restricted stock						( 96,317 )						177.26
Forfeited						( 10,488 )						188.52
Outstanding at December 31, 2020						241,921						$	195.13

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_________________________________

(1)     The amount of restricted stock that ultimately may be earned is based on the total shareholder return metrics related to the Company’s common stock for 62,043 performance awards and financial metrics related to operating performance, net asset value and leverage metrics of the Company for 38,922 performance awards.

(2)    Represents the change in the number of performance awards earned based on performance achievement for the performance period.

(3)    The amount of restricted stock that ultimately may be earned is based on the total shareholder return metrics related to the Company’s common stock for 47,502 performance awards and financial metrics related to operating performance and leverage metrics of the Company for 33,010 performance awards.

(4)    The amount of restricted stock that ultimately may be earned is based on the total shareholder return metrics related to the Company’s common stock for 38,823 performance awards and financial metrics related to operating performance and leverage metrics of the Company for 38,359 performance awards.

The Company used a Monte Carlo model to assess the compensation cost associated with the portion of the performance awards granted for which achievement will be determined by using total shareholder return measures. The assumptions used are as follows:

						2020						2019						2018
Dividend yield						2.8 %						3.1 %						3.7 %
Estimated volatility over the life of the plan (1)						11.1 % - 15.5 %						13.9 % - 18.8 %						11.8 % - 18.7 %
Risk free rate						1.45 % - 1.62 %						2.46 % - 2.57 %						1.86 % - 2.46 %
Estimated performance award value based on total shareholder return measure						$ 254.72						$ 204.15						$ 151.67

_________________________________

(1)     Estimated volatility of the life of the plan is using 50 % historical volatility and 50 % implied volatility.

For the portion of the performance awards granted for which achievement is determined by using financial metrics, the compensation cost was based on a weighted average grant date value of $ 224.64 , $ 195.86 and $ 161.10 , for the years ended December 31, 2020, 2019 and 2018, respectively, and the Company's estimate of corporate achievement for the financial metrics.

Information with respect to restricted stock granted is as follows:

						Restricted stock shares						Restricted stock shares weighted average grant date fair value per share						Restricted stock shares converted from performance awards
Outstanding at December 31, 2017						133,633						$	172.33					233,928
Granted - restricted stock shares						98,713						161.58						88,297
Vested - restricted stock shares						( 67,832 )						171.22						( 112,230 )
Forfeited						( 4,103 )						166.40						( 757 )
Outstanding at December 31, 2018						160,411						$	166.33					209,238
Granted - restricted stock shares						79,430						196.43						73,072
Vested - restricted stock shares						( 89,289 )						168.06						( 119,064 )
Forfeited						( 2,226 )						174.45						( 135 )
Outstanding at December 31, 2019						148,326						$	181.29					163,111
Granted - restricted stock shares						69,228						221.08						96,317
Vested - restricted stock shares						( 79,931 )						178.41						( 111,325 )
Forfeited						( 5,899 )						196.22						( 1,784 )
Outstanding at December 31, 2020						131,724						$	203.28					146,319

Total employee stock-based compensation cost recognized in income was $ 21,110,000 , $ 24,885,000 and $ 19,707,000 for the years ended December 31, 2020, 2019 and 2018, respectively, and total capitalized stock-based compensation cost was $ 9,974,000 , $ 9,396,000 and $ 10,208,000 for the years ended December 31, 2020, 2019 and 2018, respectively. At December 31, 2020, there was a total unrecognized compensation cost of $ 25,200,000 for unvested restricted stock and performance awards, which does not include forfeitures, and is expected to be recognized over a weighted average period of 1.8 years. Forfeitures are included in compensation cost as they occur.

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Employee Stock Purchase Plan

In October 1996, the Company adopted the 1996 Non-Qualified Employee Stock Purchase Plan (as amended, the “ESPP”). Initially 1,000,000 shares of common stock were reserved for issuance under this plan. There are currently 634,274 shares remaining available for issuance under the ESPP. Employees of the Company generally are eligible to participate in the ESPP if, as of the last day of the applicable purchase period, they have been employed by the Company for at least one month . Under the ESPP, eligible employees are permitted to acquire shares of the Company's common stock through payroll deductions, subject to maximum purchase limitations, during two purchase periods. The first purchase period begins January 1 and ends June 10, and the second purchase period begins July 1 and ends December 10. The purchase price for common stock purchased under the plan is 85 % of the lesser of the fair market value of the Company's common stock on the first day of the applicable purchase period or the last day of the applicable purchase period. The offering dates, purchase dates and duration of purchase periods may be changed if the change is announced prior to the beginning of the affected date or purchase period. The Company issued 20,161 , 13,894 and 12,955 shares and recognized compensation expense of $ 537,000 , $ 761,000 and $ 436,000 under the ESPP for the years ended December 31, 2020, 2019 and 2018, respectively. The Company accounts for transactions under the ESPP using the fair value method prescribed by accounting guidance applicable to entities that use employee share purchase plans.

Unconsolidated Entities

The Company manages unconsolidated real estate entities for which it receives asset management, property management, development and redevelopment fee revenue. From these entities, the Company earned fees of $ 3,819,000 , $ 4,960,000 and $ 3,572,000 in the years ended December 31, 2020, 2019 and 2018, respectively. In addition, the Company had outstanding receivables associated with its property and construction management role of $ 5,408,000 and $ 3,924,000 as of December 31, 2020 and 2019, respectively.

Director Compensation

Directors of the Company who are also employees receive no additional compensation for their services as a director. Following each annual meeting of stockholders, non-employee directors receive (i) a number of shares of restricted stock (or deferred stock units) having a value of $ 170,000 and (ii) a cash payment of $ 90,000 , payable in equal quarterly installments of $ 22,500 . The number of shares of restricted stock (or deferred stock units) is calculated based on the closing price on the day of the award. Non-employee directors may elect to receive all or a portion of cash payments in the form of deferred stock units. Additionally, the Lead Independent Director receives in the aggregate an additional annual fee of $ 30,000 payable in equal quarterly installments of $ 7,500 , the non-employee director serving as the chairperson of the Audit Committee receives additional cash compensation of $ 25,000 per year payable in equal quarterly installments of $ 6,250 , the non-employee director serving as the chairperson of the Compensation Committee receives additional cash compensation of $ 20,000 per year payable in equal quarterly installments of $ 5,000 and the Nominating and Corporate Governance and Investment and Finance Committee chairpersons receive an additional annual fee of $ 15,000 payable in equal quarterly installments of $ 3,750 .

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Financial Instruments Carried at Fair Value

Derivative Financial Instruments

The Company uses interest rate swap and interest rate cap agreements to manage its interest rate risk. These instruments are carried at fair value in the Company's financial statements. In adjusting the fair value of its derivative contracts for the effect of counterparty nonperformance risk, the Company has considered the impact of its net position with a given counterparty, as well as any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. The Company minimizes its credit risk on these transactions by dealing with major, creditworthy financial institutions which have an A or better credit rating by the Standard & Poor's Ratings Group. As part of its on-going control procedures, the Company monitors the credit ratings of counterparties and the exposure of the Company to any single entity, thus reducing credit risk concentration. The Company believes the likelihood of realizing losses from counterparty nonperformance is remote. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, such as interest rate, term to maturity and volatility, the credit valuation adjustments associated with its derivatives use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. As of December 31, 2020, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined it is not significant. As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.

The following table summarizes the consolidated derivative positions at December 31, 2020 (dollars in thousands):

						Non-designated Hedges
						Interest Rate Caps						Interest Rate Swaps
Notional balance						$	679,167					$	150,000
Weighted average interest rate (1)						1.7		%				N/A
Weighted average swapped/capped interest rate						6.4		%				0.7		%
Earliest maturity date						January 2021						May 2021
Latest maturity date						January 2024						May 2021

_________________________________

(1)     For debt hedged by interest rate caps, represents the weighted average interest rate on the hedged debt prior to any impact of the associated interest rate caps.

The following activity occurred during the year ended December 31, 2020:

• The Company settled an aggregate of $ 600,000,000 of forward interest rate swap agreements, making aggregate payments of $ 25,135,000 . Of the positions settled by the Company, $ 250,000,000 were forward interest swaps that the Company had entered into during 2020. The settled positions were comprised of the following:

◦ In conjunction with the issuance of the Company's $ 700,000,000 unsecured notes due 2030 in February 2020, the Company settled $ 350,000,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability on the issuance of the unsecured notes, making a payment of $ 20,314,000 .

◦ In conjunction with the issuance of the Company's $ 600,000,000 unsecured notes due 2031 in May 2020, the Company settled $ 250,000,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability on the issuance of the unsecured notes, making a payment of $ 4,821,000 .

The Company has deferred these amounts in accumulated other comprehensive loss on the accompanying Condensed Consolidated Balance Sheets, and is recognizing the impact as a component of interest expense, net, over the term of the respective hedged debt.

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• The Company entered into an additional $ 150,000,000 of new forward interest rate swap agreements executed to reduce the impact of variability of interest rates on a portion of the Company's expected debt issuance activity in 2021 (the "Swaps"). Based on changes in the Company's expected capital requirements for 2021 as of December 31, 2020, while the Company may still issue debt in 2021, it is no longer probable that the Company will issue the debt for which the Swaps were executed. As a result, the Company ceased hedge accounting and recognized a gain of $ 2,894,000 for the change in fair value of the Swaps for the three months ended December 31, 2020, in interest expense, net, on the accompanying Consolidated Statements of Comprehensive Income.

The Company had ten derivatives not designated as hedges at December 31, 2020 including the Swaps discussed above. Other than the Swaps, fair value changes for derivatives not in qualifying hedge relationships for the years ended December 31, 2020 and 2019, were not material. During 2020, the Company deferred $ 17,731,000 of net losses for cash flow hedges reported as a component of accumulated other comprehensive loss.

The following table summarizes the deferred losses reclassified from accumulated other comprehensive income as a component of interest expense, net (dollars in thousands):

			For the year ended
			12/31/20						12/31/19						12/31/18
Cash flow hedge losses reclassified to earnings			$	8,984					$	6,571					$	6,143

The Company anticipates reclassifying approximately $ 9,467,000 of net hedging losses from accumulated other comprehensive loss into earnings within the next 12 months as an offset to the hedged item during this period. The Company did not have any derivatives designated as fair value hedges as of December 31, 2020 and 2019.

Financial Instruments Not Carried at Fair Value

Cash and Cash Equivalents

Cash and cash equivalent balances are held with various financial institutions within accounts designed to preserve principal. The Company monitors credit ratings of these financial institutions and the concentration of cash and cash equivalent balances with any one financial institution and believes the likelihood of realizing material losses related to cash and cash equivalent balances is remote. Cash and cash equivalents are carried at their face amounts, which reasonably approximate their fair values and are Level 1 within the fair value hierarchy.

Other Financial Instruments

Rents and other receivables and prepaid expenses, accounts and construction payable and accrued expenses and other liabilities are carried at their face amounts, which reasonably approximate their fair values.

In conjunction with the development of Avalon Brooklyn Bay, the Company entered into a joint venture agreement to construct a mixed-use building that included for-sale residential condominium units and related common elements, in addition to the Company's rental apartments, in which the Company has a 100% interest. The venture partner has a 100% interest in the for-sale residential condominium units. The Company was responsible for the development and construction of the structure, and provided a loan to the venture partner for the venture partner's share of costs for the for-sale residential condominium units. As of December 31, 2020, the Company has a receivable from the venture partner in the form of a variable rate mortgage note, secured by the remaining for-sale residential condominium units. The balance as of December 31, 2020 was $ 3,645,000 , representing outstanding principal and interest, net of repayments, and as of December 31, 2019, was $ 10,650,000 , representing outstanding principal and interest. These amounts are reported as a component of prepaid expenses and other assets on the accompanying Consolidated Balance Sheets. The Company recognizes interest income on the accrual basis.

The Company values its unsecured notes using quoted market prices, a Level 1 price within the fair value hierarchy. The Company values its notes payable and outstanding amounts under the Credit Facility and Term Loans using a discounted cash flow analysis on the expected cash flows of each instrument. This analysis reflects the contractual terms of the instrument, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The process also considers credit valuation adjustments to appropriately reflect the Company’s nonperformance risk. The Company has concluded that the value of its notes payable and amounts outstanding under its Credit Facility and Term Loans are Level 2 prices as the majority of the inputs used to value its positions fall within Level 2 of the fair value hierarchy.

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Financial Instruments Measured/Disclosed at Fair Value on a Recurring Basis

The following tables summarize the classification between the three levels of the fair value hierarchy of the Company's financial instruments measured/disclosed at fair value on a recurring basis (dollars in thousands):

Description			Total Fair Value						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
			12/31/2020
Non Designated Hedges
Interest Rate Caps			$	6					$	—					$	6					$	—
Interest Rate Swaps - Assets			4,308						—						4,308						—
DownREIT units			( 1,203 )						( 1,203 )						—						—
Indebtedness
Fixed rate unsecured notes			( 7,271,799 )						( 7,271,799 )						—						—
Secured notes and variable rate unsecured indebtedness			( 1,043,976 )						—						( 1,043,976 )						—
Total			$	( 8,312,664 )					$	( 7,273,002 )					$	( 1,039,662 )					$	—
			12/31/2019
Cash Flow Hedges
Interest Rate Swaps - Assets			$	388					$	—					$	388					$	—
Interest Rate Swaps - Liabilities			( 6,379 )						—						( 6,379 )						—
DownREIT units			( 1,573 )						( 1,573 )						—						—
Indebtedness
Fixed rate unsecured notes			( 6,197,771 )						( 6,197,771 )						—						—
Secured notes and variable rate unsecured indebtedness			( 1,398,147 )						—						( 1,398,147 )						—
Total			$	( 7,603,482 )					$	( 6,199,344 )					$	( 1,404,138 )					$	—

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																		2020																																																2019						2020
																		Initial Cost																		Total Cost
Community						City and state						# of homes						Land and improvements						Building / Construction in Progress & Improvements						Costs Subsequent to Acquisition / Construction						Land and improvements						Building / Construction in Progress & Improvements						Total						Accumulated Depreciation						Total Cost, Net of Accumulated Depreciation						Total Cost, Net of Accumulated Depreciation						Encumbrances						Year of Completion/ Acquisition
REDEVELOPMENT
AVA Ballston						Arlington, VA						344						$	7,291					$	29,177					$	19,199					$	7,291					$	48,376					$	55,667					$	33,782					$	21,885					$	20,825					$	—					1990
TOTAL REDEVLOPMENT												344						$	7,291					$	29,177					$	19,199					$	7,291					$	48,376					$	55,667					$	33,782					$	21,885					$	20,825					$	—
TOTAL CURRENT COMMUNITIES (5)												76,975						$	4,204,414					$	15,449,619					$	2,171,634					$	4,204,414					$	17,621,253					$	21,825,667					$	5,658,853					$	16,166,814					$	16,582,216					$	879,814
DEVELOPMENT (6)
AVA Hollywood						Hollywood, CA						695						$	81,731					$	228,194					$	59,491					$	81,731					$	287,685					$	369,416					$	5,682					$	363,734					$	325,576					$	—					N/A
Avalon Brea Place						Brea, CA						653						—						2,011						200,834						—						202,845						202,845						—						202,845						112,025						—						N/A
Avalon Monrovia						Monrovia, CA						154						—						405						46,166						—						46,571						46,571						—						46,571						15,830						—						N/A
AVA RiNo						Denver, CO						246						—						34						49,245						—						49,279						49,279						—						49,279						18,226						—						N/A
Avalon Acton II						Acton, MA						86						1,159						19,741						8,032						1,159						27,773						28,932						129						28,803						4,474						—						N/A
Avalon Easton 2						Easton, MA						44						—						—						2,589						—						2,589						2,589						—						2,589						N/A						—						N/A
Avalon Woburn						Woburn, MA						350						—						52						67,850						—						67,902						67,902						—						67,902						29,689						—						N/A
Kanso Twinbrook						Rockville, MD						238						1,537						10,336						46,506						1,537						56,842						58,379						31						58,348						30,788						—						N/A
Avalon 555 President						Baltimore, MD						400						3,387						34,696						87,836						3,387						122,532						125,919						198						125,721						86,367						—						N/A
Avalon Foundry Row						Owings Mill, MD						437						—						2,011						77,227						—						79,238						79,238						—						79,238						21,480						—						N/A
Avalon Old Bridge						Old Bridge, NJ						252						3,008						28,990						31,299						3,008						60,289						63,297						244						63,053						35,463						—						N/A
Avalon Somerville Station						Somerville, NJ						375						—						—						25,385						—						25,385						25,385						—						25,385						N/A						—						N/A
Avalon Yonkers						Yonkers, NY						590						19,500						117,593						68,889						19,500						186,482						205,982						3,321						202,661						165,749						—						N/A
Avalon Harrison						Harrison, NY						143						—						—						38,436						—						38,436						38,436						—						38,436						26,158						—						N/A
Avalon Harbor Isle						Island Park, NY						172						—						—						27,163						—						27,163						27,163						—						27,163						N/A						—						N/A
Avalon Newcastle Commons II						Newcastle, WA						293						310						6,807						92,566						310						99,373						99,683						14						99,669						43,966						—						N/A
The Park Loggia Commercial (7)						New York, NY						N/A						77,394						76,286						—						77,394						76,286						153,680						3,693						149,987						151,487						—						2019
TOTAL DEVELOPMENT												5,128						$	188,026					$	527,156					$	929,514					$	188,026					$	1,456,670					$	1,644,696					$	13,312					$	1,631,384					$	1,067,278					$	—
Land Held for Development												N/A						$	110,142					$	—					$	—					$	110,142					$	—					$	110,142					$	—					110,142						$	—					$	—
Corporate Overhead												N/A						7,814						11,414						95,270						7,814						106,684						114,498						56,275						58,223						45,115						6,750,000
For-sale condominium inventory (7)						New York, NY						N/A						131,934						233,794						( 98,509 )						131,934						135,285						267,219						—						267,219						457,809						—						2019
2020 Disposed Communities												N/A						—						—						—						—						—						—						—						—						280,571						—
TOTAL												82,103						$	4,642,330					$	16,221,983					$	3,097,909					$	4,642,330					$	19,319,892					$	23,962,222					$	5,728,440					$	18,233,782					$	18,432,989					$	7,629,814		(8)

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(1)     This community was under redevelopment for some or all of 2020, with the redevelopment effort primarily focused on the exterior and/or common area, or with the redevelopment effort focused on apartment homes that do not meet the definition of a Redevelopment Community. These redevelopment activities have no expected material impact on community operations, and therefore this community is included in the Established Community portfolio and not classified as a Redevelopment Community.

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(2)     Some or all of the land for this community is subject to a finance land lease.

(3)    Some or all of the land for this community is subject to an operating land lease.

(4)     As of December 31, 2020, this community qualified as held for sale.

(5)    Current Communities excludes Unconsolidated Communities.

(6)    Development Communities excludes Avalon Alderwood Mall and AVA Arts District, which are being developed within unconsolidated joint ventures.

(7)    The Park Loggia is comprised of 172 for-sale residential condominiums, of which 70 have been sold as of December 31, 2020, and 66,000 square feet of commercial space. Real estate related to the sold condominiums is included in costs subsequent to acquisition/construction.

(8)    Balance outstanding represents total amount due at maturity, and excludes deferred financing costs and debt discount associated with the unsecured and secured notes of $ 47,995 and $ 17,482 , respectively.

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Amounts include real estate assets held for sale.

Depreciation of AvalonBay Communities, Inc. building, improvements, upgrades and furniture, fixtures and equipment (FF&E) is calculated over the following useful lives, on a straight line basis:

Building— 30 years

Improvements, upgrades and FF&E—not to exceed 7 years

The aggregate cost of total real estate for federal income tax purposes was approximately $ 22,969,235 at December 31, 2020.

The changes in total real estate assets for the years ended December 31, 2020, 2019 and 2018 are as follows:

			For the year ended
			12/31/2020						12/31/2019						12/31/2018
Balance, beginning of period			$	23,606,872					$	22,342,576					$	21,935,936
Acquisitions, construction costs and improvements			860,594						1,615,949						1,568,878
Dispositions, including casualty losses and impairment loss on planned dispositions			( 505,244 )						( 351,653 )						( 1,162,238 )
Balance, end of period			$	23,962,222					$	23,606,872					$	22,342,576

The changes in accumulated depreciation for the years ended December 31, 2020, 2019 and 2018, are as follows:

			For the year ended
			12/31/2020						12/31/2019						12/31/2018
Balance, beginning of period			$	5,173,883					$	4,611,646					$	4,218,379
Depreciation, including discontinued operations			707,331						661,578						631,196
Dispositions, including casualty losses			( 152,774 )						( 99,341 )						( 237,929 )
Balance, end of period			$	5,728,440					$	5,173,883					$	4,611,646